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Pequot Lakes to fix disparity in city taxes

With an ultimate goal of Pequot Lakes residents paying equal taxes for equal properties, the city council on Tuesday, June 4, agreed on a way to reach that equality.

Basically, residents in the “rural tax district” — or the former Sibley Township — likely will see their city portion of property tax increase, while residents in the “urban tax district” — or the former square-mile city limits — likely will see their city portion of taxes decrease to fix a 10-plus year disparity in city taxes among those two tax districts.

A quick history lesson clarifies the dilemma.

In June 2002, Sibley Township and the city of Pequot Lakes agreed to an orderly annexation of the two entities, and they merged to become Pequot Lakes, growing from one to 18 square miles.

A rural taxing district and an urban taxing district were created with a city levy tax ratio of $2 in the urban (city) district to $1 in the rural district (township). The thought at the time was that urban district residents would benefit more from city sewer and water and, thus, should pay a higher city tax.

Questions were raised here and there over the years, with city resident Jack Schmidt one of the most recent to question the disparity.

“The homeowners in the urban residential district pay a significantly higher property tax than the same homeowner in the rural district,” says a taxation summary the council received from the city’s Economic Development Commission (EDC), which was charged with studying the issue. “Many of those urban district homeowners do not have access to city sewer or water.”

In fact, said Mark Jurchen, chair of the EDC who explained the report to the city council, a separate sewer and water fund actually pays for those services, not the city tax levy.

“It’s taking more emotion and time to beat a dead horse, but we’re trying to fix an inequity,” Jurchen said. “What we’re trying to do here is correct a situation.

“This will be a redistribution of who pays taxes. ... The whole objective is to level the taxes for equal properties in the city,” he told the council.

The EDC recommended a one- to three-year phase-in period. The council unanimously agreed to the three-year phase-in, though council member Scott Pederson said he was leaning toward a longer phase-in period because of the financial impact on some homeowners, compounded with the current state of the economy.

The council will hold a public hearing on the matter at 6:30 p.m. Tuesday, July 23, to hear public comment. It then will consider an ordinance change at its August meeting, at which time the council could change the length of the phase-in period.

The goal is to have the phase-in start with 2014 property taxes.

The city hired Springsted to help with the study.

At the time of the township-city merger, a six-year phase-in of city tax increases to equal the urban commercial district’s tax rate was established.